Texas Electricity Regulators Won't Fix a $50 Million Mistake

Hot weather and blasted a/c might be two factors influencing your utility bill. But since utility prices in Texas are ultimately decided by a computer, not humans, consumers may have something else to worry about: computers making errors based on wrong information, which can cause your utility bill to shoot up for no reason.

That's what happened at least twice last year. The worst spike was in May. An electricity provider predicted that some power lines in west Texas would be overwhelmed, that a shortage would ensue and, as on the stock exchange, higher demand would lead to higher prices for consumers. It provided this information to the computer system, operated by the Electric Reliability Council of Texas.

Little problem: That prediction turned out flatly incorrect.

While electricity prices spiked to nearly 23 times what they should have been for just a tiny period of time, the energy trader who discovered the error, Adam Sinn of Raiden Commodities, has estimated that that little mistake cost consumers somewhere around $50 million, as first reported by Houston Public Media.

Raiden actually profited from this little mistake, but its attorney, Barry Hammond, says the company decided to file a formal complaint with the Public Utilities Commission of Texas (the agency that regulates ERCOT) because ERCOT has refused to amend the prices even though it was aware of the mistake and its protocol apparently called for a correction. In December, ERCOT's attorney argued that since it was the electricity provider's wrong prediction that caused the spike, it wasn't ERCOT's problem. In fact, she questioned whether ERCOT could even do anything about Raiden's request given that Raiden made money off the data error — as though the people who didn't, consumers, were somehow not a part of this.

More concerning, Hammond claims, is that this data mistake is not an anomaly but rather something he's confident happens frequently. Who knows how many of these erroneous spikes have happened when people like Adam Sinn weren't watching. “My client has a problem with a market that's not transparent, with an opaque market, one that doesn't work as it should,” Hammond said. “Even if there was a profit this time, next time, there might not be.”

Further, those electricity providers who hand over data to the almighty computer system may sometimes own generators, too — which means they can directly profit from price spikes caused by less than accurate information, Hammond said. And since some members of ERCOT are also generators, Hammond said, this conflict of interest may create a larger problem.

“The bigger picture is, one, the people that are running ERCOT seem to have no incentive to make adjustments to create valid market prices,” he said. “Two, we've either got an oversight problem or a market problem if this continues to happen and isn't addressed.”

PUCT is expected to file a response to Raiden's complaint in March. Neither PUCT nor ERCOT's general counsel returned requests for comment Tuesday.